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Tag Archives | Tax policy

Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing

We analyze how changes in the income tax deduction for mortgage interest would affect loan-to-value ratios on owner-occupied homes, the distribution of income tax liabilities, and the consumption of housing services. Using the 2004 Survey of Consumer Finances, we estimate that repealing the mortgage interest deduction in 2003 would have raised federal and state income tax revenues by $72.4 billion in the absence of any household portfolio adjustments, but by only $58.5 billion if homeowners drew down financial assets to pay down their mortgage debt.

Revenue Costs and Incentive Effects of the Mortgage Interest Deduction for Owner-Occupied Housing with James Poterba, National Tax Journal vol. 64, number 2 (June 2011), 531-564 (PDF)

Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income

Federal income tax policy affects the cost of homeownership for many households. Popular discussions of the favorable tax treatment of owner occupied housing usually focus on the tax-deductibility of mortgage interest and property tax payments, as well as the specialized tax rules that affect housing capital gains. Academic discussions, in contrast, emphasize the exclusion of the imputed rental income on owner-occupied housing as the key tax benefit for homeowners. This paper summarizes the current distribution of the tax benefits associated with the mortgage interest and property tax deductions. It contrasts them with the distribution of tax benefits associated with the current tax regime for imputed rental income relative to one which taxed homeowners as if they were landlords. It also reports how removing either deduction, or taxing homeowners as landlords, would affect the user cost of owner-occupied housing.

Tax Expenditures for Owner-Occupied Housing: Deductions for Property Taxes and Mortgage Interest and the Exclusion of Imputed Rental Income with James Poterba, American Economic Review Papers and Proceedings, vol. 96, number 2 (May 2008) (PDF)

The Asset Price of Capital Gains Taxes: Evidence from the Taxpayer Relief Act of 1997 and Publicly-Traded Real Estate Firms

We provide new evidence that corporate-level investment subsidies can be substantially capitalized into asset prices by examining the relative stock price performance of publicly traded companies in the real estate industry that should have been differentially affected by the capital gains tax rate reduction enacted in the Taxpayer Relief Act of 1997. By comparing real estate firms that have an organizational structure that allow property sellers to defer capital gains taxes and plan to use it to acquire property with those that do not, we isolate the effect of the tax cut from industry trends and firm-level heterogeneity. When we examine the time period surrounding the reduction in the capital gains tax rate, our results suggest the tax change was substantially capitalized into lower share prices for these firms and that the benefit of the seller’s capital gains tax deferral accrued mainly to the buyer of an appreciated property. The validity of our estimation strategy is supported by further tests showing that these firms did not experience any relative movement in share prices during the previous year when capital gains tax rates did not change.

The Asset Price of Capital Gains Taxes: Evidence from the Taxpayer Relief Act of 1997 and Publicly-Traded Real Estate Firms with Joseph Gyourko, Journal of Public Economics vol 88, number 7-8 (July 2004), pp. 1543-1565 (PDF)

Capital Gains Realizations and Tax Rates: New Evidence from Time Series

Using data from the 1986 through 1997 period, we update the time series evidence on the response of capital gains realizations to tax rates. In general, we find higher long-run elasticities than reported in many previous studies, but the estimates decrease substantially when the influence of 1986 is effectively removed. We explore several explanations for a diminished behavioral response in the period following fundamental tax reform, finding some suggestive evidence that the response may be dulled in part by a succession of rate changes in a relatively short period and the increasing role of mutual funds in households’ portfolios.

Capital Gains Realizations and Tax Rates: New Evidence from Time Series with Matthew Eichner, National Tax Journal vol 53, number 3 (September 2000), pp. 663-681

The REIT Vehicle: Its Value Today and the Future

The real estate investment trust (REIT) structure has come under increasing scrutiny given the problems the structure poses for finns wishing to retain earnings in depressed real estate equity and debt markets. We estimate the net benefits of the structure to be no more than 2%-5% of industry equity market capitalization, although the benefits are larger for firms with lower payout ratios. In addition, the value of the format doubles as the share of tax exempt/deferred investment in REITs increases to 40%, the fraction obtaining in the broader equity market. Educating this investor clients on the benefits of the REIT structure is an important goal for REIT management.

The REIT Vehicle: Its Value Today and the Future with Joseph Gyourko, Journal of Real Estate Research vol 18, number 2 (September/October), pp. 355-376 [Reprinted in Properties, number 2 (Winter 2000), pp 35-56] (PDF)

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